Excerpt from Appellate Division Denies Deduction for Interest Income Received from Lower Tier Subsidiaries

Affirming a decision by the New York City Tax Appeals Tribunal, the Appellate Division, First Department, held that a taxpayer was not entitled to a 17% deduction for interest income it received from its third- and fourth-tier subsidiaries under the City bank tax. Bankers Trust Corp. v. Tax Appeals Tribunal, No. 7057-36, 2012 NY Slip Op. 01761 (1st Dep’t, Mar. 13, 2012).

Bankers Trust Corporation and several affiliated corporations filed combined City Bank Tax returns for the years 1986, 1987, and 1993 (the “years in issue”). They reported interest income that Bankers Trust Company (“BT”) had received from affiliated corporations not included in those returns, including non–U.S., lower-tier companies (called the “Indirect Subsidiaries” in the Tribunal decision), owned through several “Intermediate Subsidiaries.” The corporate structure was made necessary by the laws and regulations of the various jurisdictions in which these corporations did business, as well as by the Edge Act, 12 U.S.C. ch. 6, subch. II, and served to insulate and protect BT’s assets.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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